At&t Dispute Casts Doubt In Mexico

Battle With Contractor Could Do

Damage To Country's Global Image

May 22, 1994|By CHARLES LUNAN Business Writer

GUADALAJARA, Mexico - — When AT&T opened its 2,500-employee plant here in 1991 to build answering machines, government and company officials hailed it as a symbol of the country's growing allure to foreign investors.

Now, the plant could become a symbol of why not to do business in Mexico. A dispute over construction of the plant has deteriorated into a barrage of nasty accusations, criminal charges and arrest warrants.

The dispute has been covered widely by Mexican newspapers but has yet to be publicized in the United States. Yet, its resolutions could have ramifications for thousands of South Florida companies scouting Mexico for trade and investment opportunities.

Even as officials were cutting ribbons at the 95,760-square-foot factory, AT&T was firing its Mexican contractor for allegedly cutting corners and missing deadlines. Four years later, the company is still trying to collect a $7.8 million arbitration award from Jose Suzumu Azano Moritani, a major political fund-raiser and one of Mexico's largest comercial builders.

Today, the parties are expected to meet face-to-face with a Mexican mediator for the first time.

The seemingly mundane contractual dispute has escalated into a nasty fight that has jeopardized Mexico's closely nurtured image as a global manufacturing center. It has also raised questions about the Mexican government's commitment to protecting foreign investors whose money and technology is so key to Mexico's future.

"Clearly there is a wide gulf between the rhetoric of free trade agreements and the reality of free trade," said Eduardo Gamarra, director of the Latin American Caribbean Center at Florida International University in Miami.

The dispute shows that even a company with AT&T's global experience and resources can stumble when entering new markets. It also shows the risks of unilaterally imposing U.S. standards and practices in Mexico, which is rapidly emerging as a critical market for South Florida.

"Suzumu [Azano) is a very highly competent guy," said Tom Kessler, an American manufacturer who helped Azano build a plant in Guadalajara for the Japanese manufacturer Shisuki. "What AT&T did was come in and hire him and proceeded to give them a 10-volume library of corporate specs. In Mexico they don't read the fine print."

AT&T insists the dispute has not affected its ambitious plans for Mexico, but many in Guadalajara fear the acrimony of the dispute could scare away future investors.

"We are very concerned because this is an image we are giving worldwide, and with NAFTA we have to be very clear, very transparent," said Jorge Corvera Gibsone, a textile magnate in Guadalajara who is trying to mediate the dispute.

Strong commercial arbitration laws are considered fundamental for expanded international trade and investment. The authors of NAFTA dedicated three chapters to the subject.

Azano declined a telephone interview last week, saying he could not speak to the press until after today. But Kessler said that while Azano may have ignored AT&T's specifications, he doubts that he ever set out to defraud the company.

After his firing, Azano refused to honor the arbitration clause in his contract with AT&T, said Eduardo Luna Prechiche, who was appointed by default to represent Azano in arbitration proceedings. That forced the three Mexicans who arbitrated the case to vote unanimously in September 1992 to award AT&T $7.8 million.

Ever since, Azano has outflanked AT&T in the Mexican courts and blasted it in newspapers owned by a business partner who is one of Mexico's largest publishers.

When AT&T went to state court to enforce the award, the sitting judge decreed himself incompetent to rule, Mexican court records show. Then he transferred the case to a colleague in the same jurisdiction, who promptly nullified the award after concluding it was unconstitutional.

In February 1993, a federal appeals judge ruled the second state judge had no authority to overturn a private arbitration award, according to the court order. He said both state judges had violated Mexico's arbitration laws and AT&T's constitutional rights by not enforcing the award.

He then ordered the court to force Azano to pay AT&T or to go after his assets.

Azano has since challenged the ruling on procedural grounds and there has been no progress in the case.

In an article in the Ocho Columnas newspaper in January, AT&T attorneys in Mexico suggested Azano had influenced two state judges to get favorable rulings.

AT&T, which has meticulously avoided commenting on the case in the Mexican press, has since stopped using the lawyers.

Nevertheless, the dispute has only become more acrimonious.

After losing the federal appeal, Azano filed criminal fraud charges against AT&T, alleging they tricked him into signing an agreement in English before he could review an officially translated copy in Spanish. Then he began blasting AT&T in front page articles and full-page ads in newspapers owned by a business partner.